Fairfax and Westaim conclude $775M investment agreement

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By Ted Liu

The Westaim Corporation (TSX-V: WED) has closed previously announced transaction with Fairfax Financial Holdings Limited (TSX: FFH, FFH.U) and certain of its subsidiaries, pursuant to which Fairfax has agreed to invest up to CDN $100 million in Westaim.

Fairfax has agreed to purchase, on a private placement basis, 5% interest rate preferred securities in an aggregate amount of up to $100 million, issuable in tranches of not less than CDN $25 million. Westaim has closed today an initial sale of Preferred Securities to Fairfax for CDN $50 million , and has discretion until January 1, 2018 to require Fairfax to purchase all or part of the remaining 5,000,000 Preferred Securities, for up to CDN $50 million.

The Preferred Securities are subordinate secured securities that will mature on May 26, 2116 but may be repaid, in whole or in part, by Westaim at any time after June 2, 2022 and at any time after June 2, 2020.

Westaim also issued 28,571,430 common share purchase warrants, each exercisable for one common share at an exercise price of CDN $3.50. The warrants will vest proportionately based on the aggregate percentage of Preferred Securities purchased by Fairfax with an aggregate of 14,285,715 warrants having vested today based on the closing of the initial tranche. Each vested Warrant is exercisable on or prior to June 2, 2022, but the expiry date will be extended to June 2, 2024 if the volume-weighted average trading price of the Common Shares for the 10 day period ending on June 2, 2022 is less than CDN $5.60 per share.

If the warrants are fully exercised, Fairfax would own approximately 16.6% (9.1% if only the warrants which vested today are exercised) of the issued and outstanding shares (calculated based on the number of Common Shares issued and outstanding today being 143,186,718 and assuming the exercise in full of the warrants). Fairfax did not own any securities of Westaim before.

Fairfax will have the right to nominate one director to the board of directors of Westaim as long as it owns, directly or indirectly, 5% of all outstanding common shares (determined on a partially diluted basis).

Fairfax has also agreed to invest up to US $500 million in investments sourced by Westaim’s affiliate, Arena Investors, LP. Fairfax’s commitment to invest an initial US $125 million with Arena Investors was triggered by its purchase of the initial tranche today. Fairfax has agreed to invest an additional US $125 million with Arena Investors upon the next CDN $25 million drawdown of preferred securities by Westaim, and an additional US $250 million upon the final CDN $25 million drawdown of preferred securities by Westaim.

The proceeds from the private placement will be used by Westaim for potential acquisitions and for general corporate purposes.